Nvidia’s much-anticipated Q4 earnings report saw the AI GPU leader post another large beat and raise as it reported revenue growth of 265% YoY. Nvidia guided fiscal Q1 revenues nearly $2 billion above consensus on top of its almost $2 billion revenue beat in Q4, mirroring what we saw in Q3 as demand for its H100 Hopper GPUs remains elevated.

The consistency and magnitude of the top-line beats is impressive, with Q1’s guide signaling three quarters in a row of revenue growth above 200%. However, it’s the growth further down the income statement where Nvidia’s report truly shines. Nvidia’s stronghold grip on the data center market at the moment combined with pricing power and elevated demand for its H100 GPU has allowed substantial growth in operating income and has generated robust earnings.

Read our pre-earnings write-up here.pre-earnings write-up here.

Revenue and EPS:

• Q4 revenue was $22.1 billion, beating estimates by 7.56%. This represented YoY growth of 265%, a 60 percentage point acceleration from 205% YoY in Q3.
• FY24 revenue was $60.92 billion, an increase of 126% YoY. 
• Q1 revenue was guided at $24 billion, +/- 2%, ahead of estimates for ~$21.9 billion. This represents YoY growth of 235%, or a 30 percentage point deceleration from Q4’s growth rate. We had covered in our pre-earnings write up that revenue growth will peak in Q4 for now at the 265%. This seems to still be the case unless next quarter comes in at $2.2 billion over the current guide. As we have seen these past few quarters, it’s not out of the question that Nvidia beats by this much next quarter. However, it’s looking less likely that Nvidia can sustain this peak growth as we move into the second half of the year.
• Q4 GAAP EPS of $4.93 beat estimates by 16.8%, representing YoY growth of 765%.
• Q4 adjusted EPS of $5.16 beat estimates by 11.2%, representing YoY growth of 486%.

Margins:

Nvidia’s Q4 report highlighted the incredibly strong leverage and margin expansion that the rapid growth in the data center is driving.

• GAAP gross margin was 76% in Q4, and adjusted gross margin was 76.7%, an expansion of 1270 and 1060 bp YoY respectively. 
• GAAP operating margin was 61.6% in Q4, and adjusted operating margin was 66.7%, an expansion of 4080 and 2990 bp YoY respectively.
• GAAP net margin was 55.6% in Q4, and adjusted net margin was 58.1%, an expansion of 3320 and 2220 bp YoY respectively.

Notably, Nvidia is guided “Beyond Q1, for the remainder of the year, we expect gross margins to return to the mid-70s percent range.” It was mentioned on the call that the slightly softer gross might be caused by the higher cost of HBM3.

• For FY24, GAAP gross margin was 72.7% up from 56.9% in FY23. Adjusted gross margin was 73.8% up from 59.2% in FY23.
• For FY24, GAAP operating margin was 54.1% up from 15.7% in FY23. Adjusted operating margin was 60.9% up from 33.5% in FY23.
• For FY24, GAAP net margin was 48.9% up from 16.2% in FY23. Adjusted net margin was 53% up from in FY23. 

Cash Flows:

• Cash on hand was $26.0 billion, an increase from $18.3 billion in Q3 and $13.3 billion in the year ago quarter.
• Operating cash flow was $11.5 billion in Q4, an increase of 411% YoY. FY24 operating cash flow increased 416% YoY to $28.1 billion. For FY24, operating cash flow more than doubled to 46.1%, compared to 20.9% in FY23.
• Free cash flow was $11.2 billion in Q4, an increase of 546% YoY as FCF margin topped 50%. For FY24, free cash flow increased 618% YoY to $26.9 billion. Free cash flow margin more than tripled to 44.2% from 13.9% last year.
• Debt totaled $10.95 billion.

Key Segments:

Data Center:

Data center revenue dazzled again, with Nvidia attributing the growth to “higher shipments of the NVIDIA Hopper GPU computing platform” alongside growth for InfiniBand. Revenues rose 409% YoY and 27% QoQ to $18.4 billion – in other words, a $3.9 billion increase from Q3. Nvidia generated $47.5 billion in data center revenues in FY24, up 217% YoY from $15 billion in FY23.

This is what they mean by “hockey stick” growth:

To put just how rapid this ascent in data center revenues has been, this year’s $47.5 billion in revenue is 18% more than total revenues in the segment for the past five years combined – Nvidia generated $40.2 billion in data center revenue between FY18 through FY23.

According to the CFO commentary on the call for next quarter: “We expect sequential growth in data center and ProViz, partially offset by seasonal decline in Gaming.” As our pre-earnings writeup pointed out, a few analysts were modeling $25 billion data center quarters (for $100 billion per year), so it makes sense that we will see sequential growth in the data center into the foreseeable future.

The CFO also stated that 40% of data center revenue is from inference. This is the first I remember management discussing the percentage that is from inference, and I believe that’s because AMD is pushing hard on the narrative that the MI300s will specifically outperform on inference.

Regarding China, the following was stated: “Growth was strong across all regions except for China, where our Data Center revenue declined significantly following the U.S. government export control regulations imposed in October. Although we have not received licenses from the U.S. government to ship restricted products to China, we have started shipping alternatives that don't require a license for the China market. China represented a mid-single-digit percentage of our Data Center revenue in Q4, and we expect it to stay in a similar range in the first quarter.”

Gaming:

Gaming revenue in Q4 was $2.9 billion, representing a 56% YoY increase against a softer comp and flat growth QoQ. FY24 revenue was $10.4 billion, up 15% YoY.

Pro Viz

Pro Visualization revenue in Q4 was $463 million, up 105% YoY and 11% QoQ. FY24 revenue in the segment was $1.6 billion, up 1% YoY.

Automotive:

Automotive revenue was $281 million in Q4, up 8% QoQ but down 4% YoY. FY24 revenue was $1.1 billion, up 21% YoY as more automakers in China adopt Nvidia’s Drive platform for autonomous driving capabilities.

Additional Notes:

Nvidia’s rapid top-line growth is the primary eye-catching statistic, as no other companies in tech can report such blistering revenue growth at a rate above 200% for multiple quarters at an annualized revenue rate near $90 billion. However, the strengths of Nvidia’s report lie within the operating leverage that this growth is driving.

Operating income in Q4 increased 983% YoY to $13.6 billion, driving a 769% increase in net income to $12.3 billion.

For the full year, operating income of 681% to nearly $33.0 billion, up from $4.2 billion in FY23, while net income rose 581% YoY to $29.8 billion from $4.3 billion in FY23. FY24’s GAAP EPS of $11.93 was nearly 6x higher than FY23’s $1.74.

Cash flow generation surged, with OCF margin more than doubling and FCF margin tripling in FY24. OCF and FCF have increased sequentially each quarter this year, as top-line growth is flowing directly through to the bottom line.

Earnings Call:

There wasn’t much to dissect in the earnings call as what was delivered was another blowout quarter. However, there were some questions on supply that I want to note here. It’s no secret that demand is greater than supply, hence these blowout quarters. It did seem analysts were poking holes at what the timing could be as to when supply won’t be able to continue to afford this extraordinary growth. The answers to the questions were not very informative, rather I’m noting that this seems to the be predominant concern among the analysts even if management chose to remain vague.

Question
Stacy Rasgon (Analysts)

I wanted to — Colette, I wanted to touch on your comments that you expected the next generation of products, so that black well [B100s] to be supply constrained. Can you dig into that a little bit? What is the driver of that? Why does that get constrained as Hopper is easing up? And how long do you expect that to be constrained? Like do you expect the next generation to be constrained like all the way through calendar '25? Like when do those start to ease?

Answer
Jensen Huang (Executives)

Yes. The first thing is overall, our supply is improving. Overall, our supply chain is just doing an incredible job for us. Everything from, of course, the wafers, the packaging, the memories, all of the power regulators to transceivers and networking and cables, and you name it, the list of components that we ship […] The supply chain is really doing fantastic supporting us. And so overall, the supply is improving. We expect the demand will continue to be stronger than our supply provides, and through the year and we'll do our best. The cycle times are improving and we're going to continue to do our best. However, whenever we have new products, as you know, it ramps from 0 to a very large number, and you can't do that overnight. Everything is ramped up. It doesn't step up. And so whenever we have a new generation of products and right now, we are ramping H200s, there's no way we can reasonably keep up on demand in the short term as we ramp […] So we'll — with all new products, demand is greater than supply. And that's just kind of the nature of new products, and we work as fast as we can to catch up with the demand. But overall, net-net, overall, our supply is increasing very nicely.”

Here was another question on supply that was shrugged off, so to speak, yet helps our Members to understand the Q&A had a few analysts focused on figuring out the supply constraints:

Question
Timothy Arcuri (Analysts)

I wanted to ask about how you're converting backlog into revenue. Obviously, lead times for your products have come down quite a bit. Colette, you didn't talk about the inventory purchase commitments, but if I sort of add up your inventory plus the purchase commits and your prepaid supply, sort of the aggregate of your supply, it was actually down a touch. How should we read that? Is that just you saying that you don't need to take as much of a financial commitment to your suppliers because the lead times are lower? Or is that maybe you're reaching some sort of steady state where you're closer to filling your order book and your backlog?

Answer
Colette Kress (Executives)

Yes. So let me highlight on those three different areas of how we look at our suppliers. You're correct. Our inventory on hand, given our allocation that we're on, we're trying to, as things come into inventory, immediately work to ship them to our customers. I think our customer appreciates our ability to meet the schedules that we've looked for.

The second piece of it is our purchase commitments. Our purchase commitments have many different components into it, component that we need for manufacturing but also often we are procuring capacity that we need. The length of that need for capacity or the length of the components are all different. Some of them may be for the next 2 quarters but some of them may be for multiple years. I can say the same regarding our prepaids. Our prepaids are predesigned to make sure that we have the reserve capacity that we need as several of our manufacturing suppliers as we look forward.

So wouldn't read into anything regarding approximately about the same numbers as we are increasing our supply. All of them just have different lengths as we have sometimes had to buy things in long lead times or things that need a capacity to be built for us.”

There was an important question about that pertains to our thesis that Nvidia will become a predominant player for AI software. Right now, software is at a $1 billion run rate. The comment below was the first that I can recall where the CEO was more detailed as to how Nvidia will become a force in AI software. I’m quoting it in full here as a follow up to our deep dive on AI software in July of 2022:

Answer
Jensen Huang (Executives)

Let me take a step back and explain the fundamental reason why NVIDIA will be very successful in software. […] If you don't have software, you can't open new markets. If you don't have software, you can't open and enable new applications. Software is fundamentally necessary for accelerated computing. This is the fundamental difference between accelerated computing and general-purpose computing that most people took a long time to understand. And now people understand that software is really key.

And the way that we work with CSPs, that's really easy. We have large teams that are working with their large teams. However, now that generative AI is enabling every enterprise and every enterprise software company to embrace accelerated computing, and when it is now essential to embrace accelerated computing because it is no longer possible, no longer likely anyhow, to sustain improved throughput through just general-purpose computing, all of these enterprise software companies and enterprise companies don't have large engineering teams to be able to maintain and optimize their software stack to run across all of the world's clouds and private clouds and on-prem.

So we are going to do the management, the optimization, the patching, the tuning, the installed base optimization for all of their software stacks. And we containerize them into our stack called NVIDIA AI Enterprise. And the way we go to market with it is think of that NVIDIA AI Enterprise now as a run time like an operating system. It's an operating system for artificial intelligence. And we charge $4,500 per GPU per year. And my guess is that every enterprise in the world, every software enterprise company that are deploying software in all the clouds and private clouds and on-prem will run on NVIDIA AI Enterprise, especially obviously, for our GPUs. And so this is going to likely be a very significant business over time. We're off to a great start. And Colette mentioned that it's already at $1 billion run rate and we're really just getting started.

Conclusion:

The I/O Fund portfolio is on fire right now. Our audited results from last year will be out soon, and those results will put us in the 90th percentile of all funds in the world for 2023 and also on a 4-year cumulative basis. From there, the first two months of 2024 have been extraordinary as we positioned for Q1 with a high allocation to many year-to-date winners. However, we do not think it will always remain this way – tech cannot remain in favor forever.

As you know from our pre-earnings writeup, we think Nvidia’s hitting peak growth is “tricky” for investors while acknowledging the valuation is eerily low still — it is very unusual for a stock to be up 250% in a year and yet be cheaper than it was at its bottom (Oct 2022 for Nvidia). The valuation is what makes it a buy on any dips. However, we also won’t be shy about taking gains if we reach predefined price targets. We have one in mind for Nvidia, let’s see if we get there for our next trim.

Too many investors ride high on paper gains, and subsequently lose those gains. We don’t want to choose between holding a high conviction stock and making money. Instead, we want it all – put some money in the bank, lock-in gains, yet hold the stock for the long haul at a high allocation and hedge if tech falls out of favor.

We will keep doing our very best to bring you quality winners alongside risk management with the ultimate goal of answering the million-dollar or billion-dollar question, which is how to safely participate in the life changing gains tech has to offer. We do not believe this question has been satisfactorily answered. Which is why if you see us hit our price target on Nvidia … and trim our high conviction stock … but buy aggressively on dips — then, you’ll know we are working hard to answer this question for our Members.

Recommended Reading:

• Nvidia Earnings Preview: 239% is the Revenue Growth Peak (for now)
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• AMD Q4 2023 Earnings: 75% GPU Raise, Separating the Wheat from the Chaff
• Super Micro Q2 2024 Earnings: The AI Bullet Train

When looking at Nvidia’s forward estimates, what stands out is that revenue growth will peak this quarter at 239%. This can be a tricky place for a tech investor when what’s ahead is slowing growth.

Nvidia could raise and beat, as it’s had a penchant for doing lately, but the slowing growth will eventually catch up to the stock and analysts are pegging H2 for this to happen. To contrast, Nvidia will top over the next two quarters according to revenue growth rates whereas AMD is bottoming.

It’s unclear how much of Nvidia’s expected $100 billion for the data center in FY2025 is priced in. This has been discussed since at least the last quarter’s earnings report, yet the valuation is still very reasonable. We look at this and more below to prepare you for the most anticipated earnings report of the quarter. 

Revenue and Earnings:

Nvidia is expected to report revenue growth of 239.4% for revenue of $20.54 billion for fiscal Q4 ending in January. These estimates have been steadily rising since the H100-related historic quarter last May. Last spring, the January quarter was expected to report 40% growth, and by November, the January quarter estimates were at 195%. I want to paint a picture for why Nvidia’s price action has been so strong – these revised estimates create ample room in the valuation.

For next quarter, estimates are for 204.94% growth for revenue of $21.93 billion.

• Fiscal year 2024 ending in January is expected to report revenue of $59.3 billion for growth of 119.7%.
• For fiscal year 2025, the company is expected to report revenue of $94.1 billion for growth of 58.9% with the growth overweight in the first half of calendar year 2024.

Even if we see a beat and raise, the slowing growth in the second half will be hard to overcome due to high comps. As mentioned in the introduction, Nvidia will begin to lap some stellar quarters come the October CY2024 quarter as the growth in October of CY2023 was 205.5% YoY.

Note: See below for bullish scenarios from analysts where these estimates may be too low.

Earnings growth is similar to revenue growth where the current quarter and also next quarter are expected to be stellar.

• Q4 FY2024 January quarter is expected to report growth of 426.4% for EPS of $4.63
• Q1 FY2025 April quarter is expected to report growth of 354.8% for EPS of $4.96
• From there, the July quarter is also strong at 95.4% growth yet tapers off as the company laps the high comps in the October quarter at 41.4%.

EPS growth of 40%+ is nothing to scoff at, yet the exuberance that pushed Nvidia to achieve a market cap of $1.8 trillion to where it is now the world’s second most valuable company blowing past Meta, Tesla and edging out Amazon, Alphabet is what must sustain. Fundamentals that decelerate are when the exuberance tends to wear off, and that is right around Fall of 2024 as of now.

For EPS the growth decelerates in line with revenue growth:

• FY2024 ending in January is expected to report full year EPS of $12.40 for growth of 271.1%
• FY2025 has estimates of $21.36 EPS for growth of 72.32% — as stated, right now, this is front half weighted
• FY2026 has estimates of $26.54 EPS for growth of 24.24%

We broke our portfolio management rules of having a position above 10% allocation, and therefore, we have to take it seriously that both the top line and bottom line will decelerate from >200% to 40% over the span of six months. Most analysts are in agreement that a beat/raise is likely after hours tomorrow and perhaps for next quarter. What we are keeping an eye on is further out when Nvidia laps the strong quarters in October of this year. That is a long way off, but the market is forward-looking by about 9 months.

According to current estimates, there is no acceleration on the horizon through 2026. We think those estimates will ultimately be wrong especially once AI software ramps, but for now, this is the estimates investors are working with for pricing the stock.

Margins:

• Gross margin of 74.5% expected this quarter compares to GAAP GM of 63.3% in the year ago quarter. This equals $14.9 billion in gross profit. The adjusted gross margin is expected to be 75.5% this quarter.
• Operating margin of 58.7% is expected this quarter for operating profit of $11.7 billion. The adjusted operating margin is expected to be 64.5%.
• Last quarter, net margin was 51% for net profit of $9.25 billion and adjusted net margin was 55.3% for adjusted profit of $10.02 billion.

Cash Flow:

When we compare the world’s most valuable companies, Apple stands out for its cash. This is where Nvidia will have to improve to ultimately surpass Apple. During the hype cycle of AI software is where that is most likely to occur. 

Nvidia’s cash flow is still strong, yet it doesn’t hurt to compare it to other Mag 7 stocks:

Nvidia is the third strongest cash flow generator in the Mag 7, with an operating cash flow margin above 40%, but its smaller scale puts it in sixth place in terms of cash flow generation on a dollar basis. Nvidia’s $17.5 billion in TTM free cash flow pales in comparison to Microsoft’s and Alphabet’s nearly $70 billion – and while it’s not necessarily fair to compare companies in different tech verticals, Nvidia’s rapid ascent to a valuation above Alphabet and Amazon at some point will need to be reflected in the scope of its cash flows, especially when growth begins to decelerate.

Revenue Segments:

• Data center revenue last quarter was $14.5 billion, up 279% YoY. This compares to 31% growth in the year ago quarter. For this upcoming quarter, Nvidia is expected to report data center revenue of $16.9 billion for growth of 367%, which we outlined here along with a few different scenarios including how Nvidia can get to data center revenue of $101 billion in fiscal year 2025. Note that some of the data center revenue is also driven by networking for AI system with InfiniBand up 500% last quarter to $10 billion annualized run rate. We will update you more on networking after Nvidia’s report tomorrow and also when Marvell reports early March.
• Gaming revenue of $2.86 billion is up 81% YoY. This compares to a decline of (-23%) YoY in the year ago quarter.
• Pro Visualization was up 108% YoY for revenue of $416 million compared to a decline of (-65%) YoY in the year ago quarter.
• Automotive revenue of $261 million was up 4% YoY compared to 86% growth in the year ago quarter.

Additional Notes:

Analysts are Bullish

Bullish is the common theme heading into the report, given that Nvidia has raced from 13% growth in Q1 to 235% expected growth in Q4, and nothing describes the exuberance that accompanies this historic acceleration better than a handful of analyst estimates.

It’s within the data center that this bullishness is visible, as some analysts are expecting a nearly 20% beat on the Street’s $16.8 billion estimate, up to 60% higher than the Street by end of fiscal 2025.

Loop Capital is Nvidia’s largest bull heading into earnings, attaching a Street-high $1,200 price target on shares as the firm believes data center and overall revenue growth through FY 2026 will be meaningfully above the Street’s estimates. Loop is modeling a 17% beat in data center revenue to $19.6 billion, the highest on the Street, driving a 14% beat in total revenue to $23.1 billion. 

Loop is projecting the data center to reach a $100 billion annual run rate by fiscal Q2 2025, closing the year out with data center revenue of $117.5 billion, 41% higher than the Street’s consensus of $83 billion. Overall, Loop is modeling more than $132.3 billion in total revenue for Nvidia next year, 38% higher than consensus at $95.8 billion and representing 123% YoY growth, 65 percentage points above the Street.

It is entirely plausible that Nvidia’s growth continues to fly past expectations and mirror a scenario similar to what Loop is modeling, given the elevated levels of demand for its H100 combining with the launch of its faster H200 and B100 GPUs later this year.

KeyBanc sees that Nvidia’s AI capacity is well above the Street and can support data center revenues above $100 billion in calendar 2024, nearly 30% higher than what the Street is modeling. In that sense, there still may be room for another surprise in 2024.

UBS follows closely behind Loop with expectations for a similarly large data center beat in Q4 and impressive Q1 guide on strong demand for AI compute. Analysts are expecting Nvidia to beat on data center revenue by ~$2.5 billion to $3 billion, with their estimate at $19.5 billion for the segment and $23 billion for total revenue. UBS also believes that with “supply chain work,” Nvidia could guide to $25 billion to $26 billion in revenue for fiscal Q1, more than 16% above consensus estimates for $21.9 billion. 

BofA is more tame than Loop and UBS, calling for a modest 3-5% beat, or between $500 million to $1 billion above consensus for Q4’s report and Q1’s guide. This view for a beat and raise stems from supply gains offsetting impacts from China restrictions. However, BofA cautions that a beat of this size “’would pale vs. the 10%/22% beat/raise of prior quarters and perhaps disappoint some bulls,’ the more measured pace will also be seen as creating more fertile ground for continued growth.”

Meanwhile, going back to Q3’s report in November, analysts at Barclays said that the Nvidia's large Q3 beat “may not have cleared a very high hurdle,” and "didn't quite meet sky-high expectations" at "only" $2B ahead of consensus with margins at 75% and increasing into January. That commentary serves as a clear, yet somewhat brutal, reminder that even a $2 billion beat and raise had a muted response. 

Market Shifts in Anticipation of Growth Rate Changes

An interesting pattern has been playing out with Nvidia’s stock price over the past few years as its quarterly revenue growth rate has shifted.

Nvidia’s shares topped in November and December 2021, around 7 months before growth decelerated from the 50% range to just 3% growth in the July quarter. Shares bottomed in October 2022, 7 months in advance of revenues inflecting off a (21%) decline in the January quarter to a (13%) decline in the April quarter.

Current estimates are calling for a significant deceleration to just 38% growth in the October quarter, and if this pattern continues, then we are at the brink of setting a top above the $700 range as the market anticipates this deceleration. 

H200 and B100 to Launch in Q2 and Q4

Nvidia has an ambitious AI GPU roadmap, and is expected to release the next-gen H200 and B100 GPUs later this year, just over one year after releasing the H100.

The GPUs are expected to offer another leap in performance for AI training and inference, and the H200 is already in demand by the leading CSPs – AWS will be the first to deploy the new GPU, but Microsoft, Google and Oracle will also be deploying the chips. 

It’s easy to see why the cloud giants are eager to upgrade quickly — Nvidia says the H200 will boast reduced energy usage and thus a lower TCO, while the introduction of HBM3e memory will essentially supercharge the GPU’s performance. For GPT-3 175B, the H200 is expected to offer 1.4x to 1.9x faster LLM inference on the leading GPT and Llama models compared to the H100, and an 18x performance upgrade compared to the A100.

While it will be too soon to gauge what level of demand there is for the two new GPUs from a Q1 guide, a fiscal year guide could provide insight into whether demand for the H200 and B100 can match the H100, or if Nvidia will face initial supply constraints while ramping production of the two at the same time. Additionally, Nvidia will face competition this year from AMD’s MI300s.

A Note on China:

We detailed in our Q3 report the risks surrounding China given its importance to Nvidia as well as the export restrictions impacting Nvidia’s ability to sell the A100 and H100. Nvidia’s CFO said last quarter that “export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term.”

Any China commentary will be critical, given the $80 billion to $100 billion data center segment that may be impacted. Keybanc has the $101 billion estimate for the data center segment this year yet believes that $20 billion is dependent on China. Per our write-up: “Keybanc sees a $5 impact to Nvidia’s $25.62 EPS estimate, and up to a $20B impact to its data center segment with current estimates at $101B for the data center in FY2025.”

Valuation:

Fundamentally, Nvidia’s valuation is still quite cheap compared to historical benchmarks, given the sheer leverage and earnings power that the H100 is driving.

Shares are trading at a 91x PE and 32x forward PE ratio, and though it may look elevated, it’s not a range that Nvidia is unaccustomed to – shares traded between a 75x to 100x PE ratio for a majority of the time from the second half of 2020 to early 2022. However, Nvidia’s forward PE of 32x is where the valuation has room to run. Shares bottomed in October 2022 at a 34x forward PE with declining revenue and EPS, compared to today, where EPS is expected to grow at least 73% YoY to $21.36.

On a PS basis, Nvidia still looks reasonably valued, with more potential upside if it can surprise again in 2024. Shares are trading at a forward PS of just over 18x, around the same level it held through the second half of 2023 and a steep discount to the 32x forward PS it peaked at in late 2021. Prior to 2023, Nvidia last traded at around an 18x forward PS in July and August 2022, despite the challenging macro headwinds and declining revenue growth.

Conclusion:

Our process is such that we have no issues placing Nvidia at a lower allocation if needed, or increasing that allocation back to the #1 position if needed. We want to remain flexible while acknowledging two things – the first, is the company will eventually lap high comps and the sky-high growth will not sustain forever. Secondly, that this company is the defacto leader in the multi-generational investment opportunity of AI and is trading at a reasonable valuation.

It’s entirely plausible we get a beat/raise tomorrow and a beat/raise for the next quarter. What needs to be watched is the H2 estimates as they lap high comps of 200%+. The first graph above best illustrates this.

With that said, we are in the first, early powerful move for AIfirst, early powerful move for AI. We have two more powerful moves to go — AI software and AI at the edge, and then automotive will be the grand finale. Nvidia is a leader in both, and I’ve been quite clear that our stance is that AI software for Nvidia specifically will drive more revenue than AI accelerators. We are seeing early indication that Nvidia can and will compete with Big Tech on AI software and AI at the edge with the Chat with RTX application.

Stay tuned for our post-ER writeup to hit your inboxes tomorrow night.

Premium Members, you can look forward to a deep dive on a stock that is new to the IOF portfolio that we plan to accumulate this year – we called Meta the one that got away in our year end webinar. This stock is the runner-up and we think it has more room to go (fingers crossed). Look for this in your inboxes next week.

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